Central Bank Meetings and US Inflation Print to Dictate Commodity Markets in the Upcoming Week

Central Bank Meetings and US Inflation

Date- June 10, 2023

Place- New Delhi, India

The upcoming week in commodity markets will be heavily influenced by central bank meetings and the release of US inflation data. With the June Federal Open Market Committee (FOMC) meeting on the horizon, current market expectations point towards a pause in policy tightening. Furthermore, concerning economic data from the US may restrict the scope for future tightening measures in the coming months.

This week, market sentiments received a boost from rising expectations of stimulus measures from China, coupled with growing bets of a pause in the Federal Reserve’s rate hike. As a result, the dollar, which had been holding steady above the 104 level, experienced a sharp decline. The unexpected surge in US jobless claims alleviated speculations of further monetary policy tightening.

Additionally, the US services sectors displayed minimal growth in May, with business activity and new orders slowing down. Moreover, a measure of prices paid by businesses for inputs plunged to a three-year low. On the other hand, the Euro climbed to a two-week high of 1.0785 due to expectations that the European Central Bank would raise rates by 25 basis points next week. Another 25 basis points increase in July is also anticipated, which would take rates to 3.75 percent.

The week concluded with COMEX Gold recording gains of more than 5 percent. The belief that the Federal Reserve is approaching the end of its hiking cycle prompted a pullback in the dollar and US treasury yields, subsequently benefiting non-yielding bullion. Data from the People’s Bank of China (PBoC) revealed that China increased its gold holdings for the seventh consecutive month in May by approximately 16 tons, resulting in a total stockpile of about 2,092 tons. This underscores the strong demand for the precious metal from central banks worldwide.

Gold and silver prices faced pressure earlier in the week following surprise rate hikes by the Reserve Bank of Australia and the Bank of Canada. However, the decline in the greenback triggered a recovery in COMEX Silver, rising from $23.32 per troy ounce to above $24.5 per troy ounce. Similarly, COMEX Gold rebounded from a low of $1953.8 per troy ounce to $1980 per troy ounce.

Notably, silver exhibited an inverse Head and Shoulder bullish pattern in the price action, which could potentially drive prices beyond $25 per troy ounce. The reversal support of the pattern is located near $23.20 per troy ounce, and if breached, the pattern may be invalidated.

Crude oil prices remained relatively stable throughout the week, despite the surprise announcement of a 1 million barrel per day supply cut by Saudi Arabia. This cut was countered by concerns over demand, along with reports from Middle Eastern media suggesting progress in nuclear talks between the US and Iran. Such developments added to concerns of potential increased supply.

Base metals experienced some relief as softer inflation and disappointing trade figures emerged from China, indicating a further slowdown in the world’s second-largest economy in May. Consequently, hopes were sparked that the People’s Bank of China might need to reduce interest rates in order to support a sustainable economic recovery. In terms of price action, copper moved out of a falling trend line, indicating further bullishness in price. As for NYMEX Crude oil, it is expected to trade within the range of $74 to $67 per barrel. A sustained break on either side of this range may provide a clearer direction for the price.

Looking ahead, the market has already priced in a pause for the upcoming June FOMC meeting. Additionally, deteriorating economic data from the US may restrict the potential for policy tightening in the near future. Furthermore, the prospects of additional rate hikes by the European Central

Bank and the Bank of England may exert downward pressure on the dollar.

However, it should be noted that a recovery in the greenback cannot be completely ruled out, especially if the US Consumer Price Index (CPI) and retail sales data show an unexpected upside. Such a scenario may increase the likelihood of rate hikes in subsequent FOMC meetings. The industry will be cautiously awaiting crucial economic indicators from China, as any deterioration in activity during May would only amplify calls for further support to aid economic recovery.

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